Why you should care about your electric bill rate design (what's that?)


The agency that oversees California’s largest electric utilities is considering some major changes that could limit your control over your monthly bill. A workshop scheduled tomorrow could begin to change whether you can save money if you use less power – or if you’ll have to pay a set charge no matter how much you try to reduce your electricity use.

The California Public Utilities Commission has invited electric utilities and consumer, environmental, and distributed solar groups to present what they think the best electric rate design – such as per kilowatt-hour rate, fixed charges, time of use charges – would look like for residential customers in order to promote California’s clean energy goals.

Keeping Control of Our Bills

Most people don’t spend a lot of time thinking about the details of how their electricity rate is designed. And if you are like me – and I do this for a living – you might have a hard time even reading your bill, much less explaining it. Most people know generally how much they pay for electricity each month, and could likely tell you that the more they use, the higher their bill at the end of the month and if they save energy, they can reduce it.

And that is generally true in California today if you’re a customer of PG&E, SCE, SDG&E or even Palo Alto and LADWP since their residential electricity rates are designed on the logical notion that “the more electricity you use, the more you pay.” NRDC will be urging the Commission to maintain this principle, which gives customers more control over their bills – and encourages them to invest in technology that’s more energy efficient (like weatherizing their homes), or putting solar panels on their roofs. The more energy we save, the less we need electricity from power plants that pollute our air and water.

Fixed Charges Impede Efficiency and Solar

The alternative proposed by the utilities would include a new fixed charge on your bill – one that you could not avoid no matter how much energy you saved. But this fixed charge is unnecessary. The utilities already cover their costs of providing electricity service because of a balancing mechanism that holds them neutral to how much electricity they sell, and there are much more effective ways to ensure that everyone pays for their fair share of the electricity system that would not take away customers’ ability to control their bills. For example, a per kilowatt-hour charge for when a customer uses the electric system to resell power, or a per kilowatt demand charge based on the customer’s maximum use of the electric system each month, would eliminate any need for an unavoidable “fixed charge.”

What would a fixed customer charge do to your ability to control your bill? Bear with me as we take a look at the math. If you used 500 kilowatt-hours of electricity per month (about average for a California customer) and your rate was 15 cents for each of those kilowatt-hours, it might take two years to recover your investment in new energy efficient lighting.

But if the utility charged you a $25 fixed charge per month, and reduced your rate to 10 cents per kilowatt hour to compensate, it would now take three years for that same energy efficiency investment to pay back because you cannot avoid that $25 charge and you would have to save 50 percent more kilowatt hours to recover your investment.

Whether or not to add a fixed customer charge on residential customer bills is just one of the issues at stake in the Commission’s review, but it is perhaps the one with the most consequences for your bill and for investments in energy efficiency and renewable distributed generation. As the example above illustrates, the result will impact how much you can save from your electric bill by investing in energy efficiency or rooftop solar (distributed generation). Stay tuned.